“Trump-O-Nomics” – An
exploration of the proposals

As readers know, I have been doing a multipart series on the
proposed tax reforms for the last three weeks in Thoughts from the Frontline. My intention is to
finish this week. In part two I talked about what I like about the Better Way
proposal, and in part three I pretty much eviscerated the border adjustment
tax (BAT), which I think has the real potential to create a global recession.
You’ll need to read the series to see why, but a lot of it has to do with
simple game theory, which the measure’s Republican proponents are ignoring. If
you upset the equilibrium, the other partners at the table will change their
strategies, too.

Let me repeat that what I find encouraging about the proposed tax
reforms is that they are fairly radical in the sense that there is not an
obvious constituency for much of what is proposed, and it will require some
real leadership in Congress to get them passed. In the past I have proposed a
series of tax reforms (sometimes with my friend and fellow economist Steve
Moore, in op-eds around the country) that are pro-business/entrepreneur, but we
have always constrained our proposals by what we saw as political reality.

If the Republican leadership thinks they can get the BAT through
Congress, then I’m going to take the constraints off my thinking and propose
something that is even more radical but much more workable and would not come
with the negatives that the current Republican proposal does. (It is also
something that most economists would agree with, at least in theory.) It would
unloose a massive amount of entrepreneurial spirit and free up capital to go
where it can be most productive, AND it will balance the budget. My proposal
will makes the United States heads up more competitive vis-à-vis the rest of
the world world and yet allow other countries to respond in a similar fashion,
making their own economies more competitive but without their having to try to
outcompete with us and thereby hurt global trade. But that’s all for this
weekend…

Today I want to offer as your Outside
the Box an analysis of the current tax proposal from my friend
Constance Hunter, who is the chief economist at KPMG and wicked brilliant. We
spent some time in the Caymans last week talking about these issues, and she
graciously allowed me to send this internal KPMG document to you.

She analyzes the entire proposal and tries to be fair but comes up
with many of the same negatives that I do and a few more besides. One of the
things that Constance and a few readers have noted is that the real, forceful
change that is required to get this reform through Congress will mean that,
without Democratic support in the Senate, there will be an automatic sunset
provision in 10 years that would be devastating to the economy. There needs to
be a real effort to figure out how to create something bipartisan.

Further, in a conversation yesterday at lunch with a large family
farmer, he casually noted how farmers have to borrow money in the spring and
pay it back in the fall. This has been going on for hundreds of years and is
actually a quite well-documented phenomenon of banking cash flows. In the
1800s, New York bankers would game this dollar flow, but that’s a story for
another day.

By not allowing any interest-rate deduction, as the tax-reform
proposal seeks to do, you will simply destroy the family-farming community
nationwide. I think when farm-state Republican Senators realize what this
proposal will do, they will line up to oppose it. Which is good, because I
would really prefer not to see us plunged into a global recession.

One thing that Constance does well is to bring in other economists
and their papers and really get into how the economics community is thinking
about some of the major consequences of this tax plan. Again, it is not that
the current proposal doesn’t have many good features; it is that the bad ones –
which actually allow you to pay for the good tax cuts – go about it in the
wrong way and create serious problems.

Why is this so important? Because if we don’t come up with a tax
proposal that can get through Congress this year, then we’re looking at 2018;
and do you really think the stock market is going to levitate, waiting until
2018 for a tax proposal that’s not even on the table yet? Congress needs to
focus clearly and figure out what they’re going to do – and not do things that
would make the US and global economic situation even worse.

As investors and portfolio managers, we need to be paying
attention to what Congress is saying and doing and figure out how their actions
are going to affect the economy and our portfolios. The right policies and
programs could be very good for the markets. The wrong ones? You’d want to get
out of the way of that train.

As much as I enjoy traveling and the Caymans in particular, it is
good to be back in Dallas for a few weeks and trying to catch up. As I’ve been
hinting, we are getting close to announcing our new approach to portfolio
design and management. It will be available to everyone, but we are especially
looking to make it available to brokers and advisers to use with their own
clients. The team we have put together is actually quite large, and there are a
lot of moving parts to handle to make sure we’re ready for what I hope will be
a strong response when we launch. But getting all the materials and contracts
and agreements and compliance done in advance has been a bigger project than I
realized.

But then, that has been the story of my life. My friends and
partners can tell you that I start projects not realizing how huge they are
going to be until I’m in the middle of them. Kind of like my book on how the
next 20 years will look. What I thought was going to be a fairly
straightforward book is now massively complex, and part of the challenge is to
make sure it’s not a five-volume set but is actually a fairly thrifty overview
of the Age of Transformation.

And with that I will hit the send button and try to get back to my
inbox, plus take care of a lot of writing and research that I need to do. You
have a great week, and remember that no matter what the politicians do to us,
we’ll all figure out how to Muddle Through together.

Your appreciating the reality of complexity analyst,

John Mauldin, Editor
Outside the Box

“Trump-O-Nomics” – An
exploration of the proposals

By Constance Hunter and Jennifer DorfmanKPMG US Economic Update

As Donald J. Trump begins the presidency with promises of greater
GDP growth and job creation, this report examines both the cyclical and
structural backdrop that could impact the efficacy of his plans. The report
will also discuss the border adjustable tax proposal and some possible
implications. The analysis takes into account the more than 20 percent of U.S.
imports that are priced in dollars, a unique situation that alters the normal
currency adjustment assumptions economists make when assessing the impact of
such a tax.

It is debatable how much influence presidents can have over
near-term, cyclical, economic growth. Certainly expansionary or contractionary
fiscal policy has some influence, but in the United States, discretionary
government spending is a relatively small percent of GDP so this influence is
minimal. Presidents have more influence over structural aspects of GDP via
changes to regulation, changes to the tax code, and changes to total government
spending and resulting debt levels.

In terms of the cyclical prospects for the UnitedStates, the
recovery appears to be in about the 7th inning. The Federal Reserve Bank (the
Fed) is hoping its policies can create some overtime innings and a soft
landing; however, this is often the hope of central banks, yet few are lucky
enough to achieve such feats. The
largest constraint to the Fed’s goals is apparent tightness in the U.S. labor
market. For example, the National Federation for Independent
Business1 reports that the number of respondents who say there
are few or no qualified applicants for job openings exceeds the long-term
average of 42 percent. This suggests that even if the participation rate rose,
the lack of labor market depth would still pose constraints for business
expansion despite any new incentives from tax changes or other stimulative measures.

In addition to relatively tight labor supply, the Fed has just
raised rates for the second time in the current cycle. Since the election,
long-term interest rates have risen more than short-term ones due to
anticipation of more frequent rate increases in 2017 and some possible increase
in risk premia due to fiscal policy uncertainty. However, we believe the
biggest contributor to higher rates is the stronger U.S. economy that was in
train before the presidential election. In addition to cyclical momentum seen
in jobs and consumption growth, higher oil prices are supporting a return of
oil and gas investment. Our base forecast for growth in 2017 is now higher than
before the election due to strong growth momentum.

Therefore,Trump enters his presidency at the end of a long, if
tepid, expansion with little capacity for faster growth in the near term.

Nevertheless, during
the first 100 days, the Trump administration will want to achieve some quick
wins. One way to start this would be to streamline regulation.
A study from the conservative think tank, Heritage Foundation2 found
the cost of new regulations implemented since 2008 amount to an average of $15
billion a year spent on compliance. The argument suggests this is money not
spent on generating economic activity and it reduces productivity. Even if this
number is off by 50 percent, given that U.S. corporate investment has averaged
$130 billion a year since 2010, even
$7 billion of extra investment could add up to 50 basis points a year to
investment’s contribution to GDP.

In terms of fiscal stimulus from Trump’s tax policies,
it is important to remember that in addition to lower personal and corporate
taxes, there are proposals
that would create offsets to pay for the cuts. At the moment,
Republicans are united in saying that the tax cuts and offsets are part of the
same proposal and cannot be separated. Therefore,
their economic impact must be assessed in concert.

There is a good reason for the insistence by many Republicans that
spending not simply stay the same while tax revenue declines due to tax cuts,
as this would increase our already high 102 percent general government debt to
GDP levels. Here one can turn to a well-established phenomenon in economics,
the Ricardian Equivalence Theorem.3 Ricardian Equivalence
states that the economic outcome between debt financing and increased private
spending is equal.

Or put another way, there is no free lunch. If tax cuts cause the
federal debt to rise, then companies and households spend and invest less than
the amount of the cut. The
greater the debt level at the initiation of the tax cut the smaller the portion
that is spent or invested.

The first offset is a change
to the deductibility of interest. Under the current House Republican proposal,4interest would no longer be deductible
unless it could be claimed against interest income.

While this is neutral for banks, in isolation it could hurt
heavily indebted industries, many private equity structures, and companies that
rely on debt versus equity financing. Proponents of the tax change argue that
reducing the tax benefits of debt financing would allow better allocation of
capital and would normalize the U.S. tax code with the rest of the world.
Nevertheless, most U.S.
companies will see an increase in their weighted average cost of capital
(WACC). According to outside estimates of the GOP proposal,
this would raise more than $1 trillion in additional tax receipts.5 However,
this change comes at a price. A November 2015 paper by RLG Forensics in
association with the Association for Corporate Growth predicts that “revenue
neutral” in terms of the federal budget is not the same thing as “impact
neutral” in terms of equity valuations or economic impact.6 Proponents
of the change argue that investment expensing and the reduction of the overall
corporate tax rate to 20 percent will offset the increase of the cost of WACC
in many cases. While this may be true eventually, the transition period is
likely to cause lumpiness in investment spending, which could well translate
into some quarters of negative growth.

The second offset, implementing a border adjustable tax, is
estimated to raise $1.2 trillion in tax revenue over 10 years. One main motivation for this
tax appears to be that it would discourage corporate inversions. As A Better Way7 notes,
“Taken together, a 20 percent corporate rate, a switch to a territorial system,
and border adjustments will cause the
recent wave of inversions to come to a halt.” However, other
claims that the change will now favor exports over imports ignores linkages
between imports, exports, and foreign exchange values. Perhaps more
importantly, if the tax
changes did reduce our imports, it would also reduce our standard of living, as
more goods and services would be sent to foreigners while receiving fewer goods
and services from them in return.8

Indeed the fact that in any given year 20–30 percent of U.S.
imports are priced in dollars means the J-curve effects of the currency
adjustment would likely take longer and could be adverse for importers of
commodities in the short term. Additionally, the linkages in global value
chains where many goods are priced in dollars, the long-term nature of
contracts, and general price stickiness throughout the value chain mean the
transition between implementation and complete currency adjustment could
disrupt U.S. and global GDP growth.

Nevertheless, many economists make several arguments in favor of a
border adjustable tax system.9

1.It would align more closely with the VAT system in most of our
trading partners where exports are not taxed but imports are.

2.Border adjustments reduce the incentive to manipulate transfer
prices by shifting to lower tax jurisdictions based on tax policy alone.

4.Proponents argue that border adjustments are not trade policy, but
rather create a level playing field between domestic and overseas competition.

5.Border adjustments do not distort trade as exchange rates should
react immediately to offset the impact of these adjustments.

Many economists agree with most of these points. We concur largely
with points 1-3 and in the long run with point 5, although the implementation
phase could cause disruption that may have a significant near-term impact on
GDP. On point 5, the
reserve currency status of the United States blunts this negative impact. Our
research suggests that the reserve currency status of the United States and
integrated global value chains could slow the rate of currency adjustment with
adverse unintended consequences for world and U.S. growth. The
stronger U.S. dollar will raise prices of dollar priced goods for the rest of
the world which will, at some point, if not immediately, lower demand for these
goods. No immediate adjustment will take place on the 20–30 percent of imports
priced in U.S. dollars, and it will raise prices and lower demand of these
goods worldwide.

Raising $1.1 trillion in taxes means that cost must be borne by
some part of the economy either domestically or by trading partners. In the example below, the
tax law change simply shifts the burden of the tax to different types of
businesses.

Auerbach and Holtz-Eakin assume that the world price of the goods
remains the same and that the dollar appreciates to offset the border
adjustment. They also appear to assume that the good is priced in foreign
currency and no long-term contracts or integrated value chains are in place.
Economic theory suggests that the higher import tax cost in the example below
does not mean that the firm does worse after tax under the new system once the currency adjustment is
completed and the cost of imports falls due to the higher value of the U.S.
dollar. Under the new law, the firm in the example below can
deduct only 20 of its purchases rather than 30 because 10 represents the
imported amount. However, as Auerbach and Holtz- Eakin’s paper explains, the
import costs will adjust to be 8 in dollar terms, rather than 10, if the tax
rate is 20 percent. This means that the firm’s after-tax cash flow will be the
same in the two cases; 80 percent of 15 = 12 under the current system, and 80
percent of 25 = 20 – nondeductible expenses of 8 = 12 under the new system.

We worry that this assumption is a bit too neat and the real-world
adjustment will be less smooth and not immediate. As the home of the reserve
currency, U.S. importers have the significant advantage of never having to
worry about currency price fluctuations (in particular a devaluation of the
dollar) impacting the purchase cost of commodities and many other goods that
are part of the global value chain. There are other advantages such as
significant demand for U.S. Treasuries keeping U.S. borrowing costs lower than
they otherwise would be. But the chief advantage for the purpose of analyzing
the border adjustable tax is that commodities trade in U.S. dollars.

The example put forth by Auerbach and Holtz-Eakin assumes the
exchange rate absorbs the tax change and the cost evaporates in currency
fluctuations. The tax law
change would then encourage investment as its full expensing regime makes this
activity more attractive; it would also blunt the impact from
the import tax. It is implicitly assumed that this greater investment will
translate into greater economic activity and yield a higher growth rate. One
may also assume one has a can opener.10

Over the long term, it seems reasonable that the proposed tax law
change would simplify the code, which in and of itself could allocate scarce
resources to better use thereby improving GDP. However, the transition to the new system as laid out in A Better Way does raise some questions, a few of
which are outlined below.

1.The assumption that all traded goods are priced in foreign
currency is a key part of most exchange rate models that one can apply to this
situation. Examples such as the Bickerdike-Robinson-Meltzer Model assume the
supply and demand schedules shift downward by the same proportion as the
appreciation.11 It also assumes the good is priced in foreign
currency terms, which for the United States is not the case for 20–30 percent
of its imports in a given year.

2.The demand elasticity is not the same for each imported product so the currency adjustment on a good-by-good basis may not be
equal to the tax change. Therefore, some importers would be more or less
advantaged as would some exporters.

3.With no offsetting tax cut, a
rise in the value of the dollar would hurt exports. With the
reduced corporate tax, exporters would presumably have room to lower the price
of their goods in line with the amount of the appreciation of the currency.
However, this transition is likely to be “lumpy” and could reduce exporters’
revenues during the transition period and beyond.

4.Not all importers are engaging in corporate inversion or are
importing goods because of tax reasons. Global
value chains (GVCs) have become increasingly integrated. In 2011, nearly half of world trade in goods and
services took place within GVCs, up from 36 per cent in 1995.12 This
is due in part to labor cost differentials, in part to sourcing of raw materials,
and in part to expertise in certain products and services. Thus, changing the
way imports are taxed for U.S.-domiciled companies is likely to cause
disruption to globally linked supply chains many U.S. multinational companies
have in place.

5.The J-curve effect means that there is a lag between when a
currency change takes place and the physical change in imports or exports is
realized in the current account balance. Usually orders that existed before the
currency move have yet to be paid for, thus the J-shaped change in the trade
balance immediately following a substantial currency move. A stronger dollar should increase the
current account deficit over time as U.S. dollar exports become more expensive
to our trading partners. Additionally, the immediate effect
would be a reduction in the current account deficit. This would be an addition
to GDP but it would also correspond to a significantly smaller capital account
surplus and would likely negatively
impact the U.S. equity market and increase U.S. interest rates, all other
things equal.

6.The idea of wanting to stimulate exports, reduce imports, and
reduce our current account deficit ignores the other side of this accounting
identity, the capital account. As Ruddy Dornbusch wisely noted, “The flow of
investment and the changes in the value of real capital potentially dominate
the effects of current account imbalances. A good week on the stock market
produces a change in wealth that is several times the magnitude of an entire
year’s deficit in the current account. Although it is true that the current
account is important because persistent current imbalances accumulate, exactly
the same argument can be made for investment.” A persistently lower current account deficit would equal a
persistently lower capital account surplus and over time higher interest rates
and lower stock market returns. Conversely, a high current
account deficit means there is a higher capital account surplus and an
abundance of capital in the U.S. market. This is also a function of our reserve
currency status; foreign holders of U.S. dollars need to invest their holdings
in U.S. assets. Therefore,
one can argue that the benefit to the economy overall of running a current
account deficit and a capital account surplus not only outweighs the costs, but
is a corollary to reserve currency status.

7.While it is commonly known that commodities trade in U.S. dollars,
it is likely less widely known that much of the global value chain of
intermediate goods also trades in dollars. This is in part because the U.S.
consumer base is the largest in the world which reinforces the United States’
reserve currency status. If at the margin a border adjustable tax caused fewer
goods to be priced in dollars, it could have the unintended consequence of pushing
the U.S. dollar further from reserve currency status.

There are of course other aspects of the A Better Way blueprint that
could have unintended consequences. The list above is meant to stimulate
thought and improvement of the plan and its implementation.

While some theory does support the idea that it would improve U.S.
GDP, there are a lot of assumptions that cannot be counted upon. It cannot be
overstated that while a major tax overhaul of this kind could in the long run
benefit the U.S. economy, the
transition is likely to be lumpy and could even see some quarters of negative
growth as adversely impacted firms or industries suffer or go
out of business.

The comprehensive and sweeping nature of the proposed tax changes
and the fact that they will be much more effective if they are permanent means
that the GOP will want to
be strategic in the way they pass the bill.

There are two
options that would eliminate
the need for a sunset provision. The first would require at
least eight Democrat senators to sign on. This means that compromise will alter
the current proposal. It also means that passage before the end of 2017 will be
difficult. Reagan’s 1986 tax law change took three years to negotiate and this
tax bill will take time as well. The second way the GOP could make the law
permanent is the so-called reconciliation process. This is only possible if the
law does not increase the deficit in any year beyond the official 10-year
budget window. Some believe this is their current plan—to construct the bill in
such a way to be revenue neutral or positive in years 11 and beyond. This too
would require significant changes to the current law. The Tax Policy Center assumes the
current plan adds to current deficit levels by $3.3 trillion over the first
decade.

In the meantime, it is expected the U.S. dollar to be the most
immediate asset to anticipate this change in policy over the course of 2017.
Any move in the dollar will be buttressed by the interest rate differential
between the U.S. and other high- grade government debt markets. Higher interest
rates will put pressure on Trump to achieve GDP wins early as it will reduce
U.S. exports, increase imports, and have a negative effect on GDP. Therefore, as stated above, regulatory
changes are expected to be sweeping withinTrump’s first 100 days.
However, even this is not a panacea as many of these changes will be seen in
the energy space where the
value of a barrel of oil will be just as important in determining investment
levels as regulatory changes. Remember, a stronger dollar
reduces the demand and price for oil in foreign currency terms, all things
being equal.

Therefore, it is fair to say that Trump’s 4 percent growth target
faces challenges from both structural and cyclical factors. Streamlining regulation is
Trump’s best bet for a quick win on increasing GDP.
__________

Romania finds itself gripped by the largest protests since 1989 as the country rallies against corruption. The pro-EU demonstrators are young, organize via social media and are targeting the country's political elite.They coordinate over Facebook, Twitter and Firechat. They sing together and freeze together, waving Romanian flags and cheering when words like "resistance" or "resign" are projected onto buildings housing those in power.

They are persevering, emerging evening after evening as soon as the lecture rooms of Bucharest University close and offices shut down for the night. Thousands, tens of thousands or even hundreds of thousands of demonstrators gather on Piata Victoriei in the heart of the Romanian capital, crowd up to the barriers surrounding the seat of government and shout "hotii, hotii, hotii!" meaning "thieves, thieves, thieves!"

The images of this uprising have spread across the world: a sea of people holding up their illuminated smart phones. And they show a peaceful and mostly youthful citizens' movement launched by the country's newly awakened civil society against the country's old elite. The marchers are pro-EU, which is seen positively in Romania for having brought the rule of law and economic growth to the country. And they are persistent, having protested night-after-night for almost two weeks now. First, they managed to turn back a decree that would have eliminated penalties for lower levels of official corruption and abuse of office. Now, they have their sights set on toppling the entire government. They've already bagged two ministers.In the middle of the tumult on Wednesday evening, slender and inconspicuous, stood Sebastian Burduja, 31, one of the leaders of the protests, which don't officially have a leader. Those inside, he said glancing at the government building, have to be tossed out: "They are corrupt and no longer have our trust." Burduja is head of PACT, a platform founded in 2016 by young activists demanding "competent and clean governance." When asked if he himself has political ambitions, Burduja said: "It's not about me. Prestige doesn't mean much to me. But if I were called upon, I would accept."Sebastian Burduja is one of the most self-confident heads of the mass protests and Forbes has identified him as being one of the top 30 young leaders in the country. He was born in Bucharest not long before the dictatorship of Nicolae Ceausescu came to an end and later studied political science at Stanford. He also spent three years at Harvard and worked for the World Bank in Washington. Then, in early 2016, Burduja returned home "sick with longing for Romania," as he says.

Access to Everything

On that Wednesday evening, the ninth day of the popular uprising, Burduja spent hours standing in the snow and below-zero temperatures. His wife, he noted, is American and grew up being told: "Stand up for your rights." Both of them want their daughter to be able to pursue her dreams in Romania: "maybe as a celebrated chef, maybe as a singer, maybe as something completely different." Every citizen of Romania, Burduja says, must have access to everything -- a hospital bed or a job -- without having to pay a bribe as is normal in Romania.

The protests surrounding Victory Palace, from which Prime Minister Sorin Grindeanu governs the country, are only superficially against the decree that was rushed through. The legislation called for eliminating penalties for abuse of office and corruption as long as the damage didn't exceed the equivalent of 45,000 euros -- which is six-and-a-half times the average gross annual salary in Romania.In reality, the demonstrators stand for the dreams of millions of their fellow citizens to finally, 27 years after Ceausescu's demise, be freed from exploitation at the hands of the old regime's successors. "Our break with communism was incomplete," says Burduja. "Romania was the only country in Eastern Europe to vote the communist's successor party into power following the fall of the Iron Curtain."In Romania, that party is the social democratic PSD and it is considered to be the party that is the most contaminated with corruption in in the country. Ion Iliescu, who remains, at 86, the party's honorary president, became head of state immediately following the collapse of the Ceausescu regime. His protégé Adrian Nastase, who was prime minister from 2000 to 2004, has been convicted several times since then for accepting bribes and for blackmail. Nastase's protégé Victor Ponta, who was prime minister from 2012 to 2015, was charged with corruption, breach of trust and money laundering. The current head of the party, Parliament President Liviu Dragnea, has been convicted of voter fraud and also stands accused of abuse of office and falsifying documents. The planned decree would have allowed him, the strong-man of Romanian politics, to avoid a looming prison sentence.

Yet the party was still able to win December parliamentary elections with 45 percent of the vote. How can that be? There is a simple explanation, says Burduja: "The PSD has increased pensions for retirees while doubling student stipends and granting them free train travel. The students, though, are now saying thank you and traveling for free to Bucharest from all across the country to demonstrate against the arrogance of power." Many of the people demonstrating today didn't even bother to vote.

Much Riding on Romania's Reputation

Laura Codruta-Kövesi, chief prosecutor of Romania's National Anticorruption Directorate, is currently investigating 2,151 cases of abuse of office and leads a team of 220 prosecutors. She is celebrated in European Union circles and is cheered by the demonstrators in Bucharest.

In all, the damages from the cases in question amount to over a billion euros, meaning the government's planned legal amendment would also have harmed the country's budget and not just its reputation. But there is much riding on Romania's reputation as well: With growth of almost 5 percent last year and unbroken enthusiasm for the European Union among the populace, the country has recently been in the process of ridding itself of its distinction as one of the EU's most backward member states.To be sure, at least 3 million Romanians are now living and working abroad, but other statistics are more encouraging: When it comes to per capita gross national product, Bucharest and its surroundings have overtaken Rome. Furthermore, economic output across the country is growing faster than anywhere else on the continent.Given such developments, the political crisis comes at a bad time. A vote of no confidence in the government failed on Wednesday in parliament and the protests have continued for now. A petition, of which Burduja is also among the signatories, notes not without pathos that: "Romania's history is currently being written anew" and goes on to discuss what is at stake, namely freedom, the rule of law, decency and civil society. The Romanian "Revolution of Light," the petition says, is "an example for all of Europe and for democracy worldwide." In was in 1989 that such a mass of people last took to the streets of Romania. At the time, millions demonstrated against the communist dictator Nicolae Ceausescu, who was ultimately toppled and, together with his wife Elena, executed.The man who, on Dec. 22, 1989, uttered the words on television that "the dictator has been toppled" and thus announced an end to despotism in the country is named Mircea Dinescu. Today he is considered to be Romania's greatest living poet and during the dictatorship was widely known as "a professional rebel." He is now 66 years old and runs a culturally and gastronomically ambitious estate on the banks of the Danube in addition to a restaurant in Bucharest called Lacrimi si Sfinti, or "Tears and Saints."

Full of Doubts

If you ask him whether the events of the last week remind him of 1989, Dinescu merely laughs. He says he sees no connection at all and seeks to distance himself from this "social tsunami," this sudden appearance of "young wolves," as he refers to this aggressive generation of young political activists. "The discotheques are full here and the polling stations are empty. It's paradoxical that a generation of youth, which had shown little interest in politics for years, is suddenly organizing demonstrations over the internet with record participation, isn't it?" He is full of doubts about the motives of the politicians who are now supporting the protestors and he includes Romanian President Klaus Iohannis among them. Many, he says, were silent for 27 years about the widespread theft of Romanian state assets only to sound the alarm now. "Of course it is better when the youth rises up instead of sitting at home," Dinescu says. But, he adds, it helps nobody when people use Hitler posters to demonstrate against the leftist government. Such "operetta anti-communism" is absurd, he says: "Yelling 'red scum' on the streets when you know that nothing can happen to you might be fun, but it's just a fleeting fad."For Dinescu, the demonstrations are more like an event, in contrast to 1989. "Back then, there wasn't really a movement in a true sense," he says. "Nowhere in Eastern Europe were there fewer dissidents than in Romania. Nothing would have happened on the streets if Ceausescu hadn't called for mass rallies himself only to realize too late just how wrong he had been about the public mood."It is an accurate analysis, but it ignores the conditions of the time. In 1989 in Romania, there were only two hours of television per day and few people had telephones, never mind internet and social networks. There was only one valve for the pent-up fury in the populace and it was immediately released in those mass rallies called by Ceausescu: The gathered party loyalists, who were supposed to cheer their leader, booed him instead.

'Second Revolution'

Many of today's demonstrators are too young to remember the events of 1989. But it likely isn't a coincidence that similar protest movements have developed in many other Central and Eastern European countries in recent years, such as Macedonia, Croatia and Poland. The Maidan demonstrators in Ukraine also had similar concerns. Some political scientists have begun speaking of a "second revolution," some 30 years after the first.Sebastian Burduja says: "I can remember as a four-year-old seeing my father with the revolutionary armband on his winter coat as the conviction and execution of the Ceausescu played on the television."But resistance in the 21st century, he says, works differently. Mircea Dinescu and other heroes of yesteryear, says Burduja, talk about today's opposition activists almost as though they have forgotten how others talked about them three decades ago: "Who are those guys out on the street?"Burduja says it doesn't bother him because he has a clear goal in his sights: "I have a dream of changing this country and to serve it."

A jump in automotive commodity prices adds to car makers’ worries in 2017

By Stephen Wilmot

The Chevrolet Bolt EV electric concept vehicle at the North American International Auto Show, in Detroit in 2015. A step-up in investments in autonomous technology was the key reason why General Motors missed analysts’ forecasts for fourth-quarter profit last week. Photo: Tony Ding/Associated Press The voguish theme of “reflation” has driven a rally in car stocks over the past three months. But reflation has a dark side, too: rising raw-material prices. The Trump jump in share prices could be an exit opportunity for investors before the squeeze on profits becomes more apparent.The extra costs necessary to research, design and equip cars with new gizmos, including electric powertrains, self-driving features and connections to the digital cloud have understandably garnered attention in recent months. A step-up in investments in autonomous technology was the key reason why General Motors missed analysts’ forecasts for fourth-quarter profit last week. But a more traditional form of inflation will also weigh on car makers’ margins this year: higher input costs. An index of automotive commodity prices like steel and rubber compiled by UBS is currently 38% above its level a year ago. European car makers, for instance, will face between €200 million ($212.63 million) and €700 million in extra costs each, depending on their unit sales, notes Horst Schneider of HSBC.GM and Mercedes-maker Daimler have both played down the scale of this problem in recent calls with analysts. GM said raw-material costs as they currently stand could trim its profit, all else being equal, by a figure in the “low hundreds of millions of dollars” this year, while Daimler’s comments hinted at an impact of roughly €200 million—just 1.4% of 2016 adjusted operating profit. Both companies gave outlook statements implying ongoing earnings growth, albeit at a modest rate.The problem is that such projections look more dependent than in previous years on ongoing growth in vehicle sales. Input costs also rose rapidly in 2010 and 2011, following the financial crisis, but this coincided with a recovery in consumer demand in key markets such as the U.S., China and the U.K. Cutting costs and using up spare capacity in factories more than offset the burden of rising costs on margins. But now both U.S. sales and most car makers’ operating margins are at record highs. If demand remains buoyant in key car markets—and stock prices imply a surge in optimism about prospects in the U.S.—then manufacturers should eke out further profit growth. If it doesn’t, however, profits would crater in a perfect storm of falling sales and ballooning product-development and unit-input costs. Heads investors win a bit; tails and they stand to lose a lot. On balance, this looks a good time to be selling car stocks.

ABOUT 120,000 types of protein molecule have yielded up their structures to science. That sounds a lot, but it isn’t. The techniques, such as X-ray crystallography and nuclear-magnetic resonance (NMR), which are used to elucidate such structures do not work on all proteins. Some types are hard to produce or purify in the volumes required. Others do not seem to crystallise at all—a prerequisite for probing them with X-rays. As a consequence, those structures that have been determined include representatives of less than a third of the 16,000 known protein families. Researchers can build reasonable computer models for around another third, because the structures of these resemble ones already known. For the remainder, however, there is nothing to go on. In addition to this lack of information about protein families, there is a lack of information about those from the species of most interest to researchers: Homo sapiens. Only a quarter of known protein structures are human. A majority of the rest come from bacteria. This paucity is a problem, for in proteins form and function are intimately related. A protein is a chain of smaller molecules, called amino acids, that is often hundreds or thousands of links long. By a process not well understood, this chain folds up, after it has been made, into a specific and complex three-dimensional shape. That shape determines what the protein does: acting as a channel, say, to admit a chemical into a cell; or as an enzyme to accelerate a chemical reaction; or as a receptor, to receive chemical signals and pass them on to a cell’s molecular machinery. (Models of all three, in that order, are shown above.)Almost all drugs work by binding to a particular protein in a particular place, thereby altering or disabling that protein’s function. Designing new drugs is easier if binding sites can be identified in advance. But that means knowing the protein’s structure. To be able to predict this from the order of the amino acids in the chain would thus be of enormous value. That is a hard task, but it is starting to be cracked.

Chain gang

One of the leading researchers in the field of protein folding is David Baker of the University of Washington, in Seattle. For the past 20 years he and his colleagues have used increasingly sophisticated versions of a program they call Rosetta to generate various possible shapes for a given protein, and then work out which is most stable and thus most likely to be the real one. In 2015 they predicted the structures of representative members of 58 of the missing protein families. Last month they followed that up by predicting 614 more.

Even a small protein can fold up into tens of thousands of shapes that are more or less stable. According to Dr Baker, a chain a mere 70 amino acids long—a tiddler in biological terms—has to be folded virtually inside a computer about 100,000 times in order to cover all the possibilities and thus find the optimum. Since it takes a standard microprocessor ten minutes to do the computations needed for a single one of these virtual foldings, even for a protein this small, the project has, for more than a decade, relied on cadging processing power from thousands of privately owned PCs. Volunteers download a version of Dr Baker’s program, called rosetta@home, that runs in the background when a computer is otherwise idle.

This “citizen science” has helped a lot. But the real breakthrough, which led to those 672 novel structures, is a shortcut known as protein-contact prediction. This relies on the observation that chain-folding patterns seen in nature bring certain pairs of amino acids close together predictably enough for the fact to be used in the virtual-folding process.An amino acid has four arms, each connected to a central carbon atom. Two arms are the amine group and the acid group that give the molecule its name. Protein chains form because amine groups and acid groups like to react together and link up. The third is a single hydrogen atom. But the fourth can be any combination of atoms able to bond with the central carbon atom. It is this fourth arm, called the side chain, which gives each type of amino acid its individual characteristics.

One common protein-contact prediction is that, if the side chain of one member of a pair of amino acids brought close together by folding is long, then that of the other member will be short, and vice versa. In other words, the sum of the two lengths is constant. If you have but a single protein sequence available, knowing this is not much use. Recent developments in genomics, however, mean that the DNA sequences of lots of different species are now available. Since DNA encodes the amino-acid sequences of an organism’s proteins, the composition of those species’ proteins is now known, too. That means slightly different versions, from related species, of what is essentially the same protein can be compared. The latest version of Rosetta does so, looking for co-variation (eg, in this case, two places along the length of the proteins’ chains where a shortening of an amino acid’s side chain in one is always accompanied by a lengthening of it in the other). In this way, it can identify parts of the folded structure that are close together.Though it is still early days, the method seems to work. None of the 614 structures Dr Baker modelled most recently has yet been elucidated by crystallography or NMR, but six of the previous 58 have. In each case the prediction closely matched reality. Moreover, when used to “hindcast” the shapes of 81 proteins with known structures, the protein-contact-prediction version of Rosetta got them all right.There is a limitation, though. Of the genomes well-enough known to use for this trick, 88,000 belong to bacteria, the most speciose type of life on Earth. Only 4,000 belong to eukaryotes—the branch of life, made of complex cells, which includes plants, fungi and animals. There are, then, not yet enough relatives of human beings in the mix to look for the co-variation Dr Baker’s method relies on.Others think they have an answer to that problem. They are trying to extend protein-contact prediction to look for relationships between more than two amino acids in a chain. This would reduce the number of related proteins needed to draw structural inferences and might thus bring human proteins within range of the technique. But to do so, you need a different computational approach. Those attempting it are testing out the branch of artificial intelligence known as deep learning.

Linking the links

Deep learning employs pieces of software called artificial neural networks to fossick out otherwise-abstruse patterns. It is the basis of image- and speech-recognition programs, and also of the game-playing programs that have recently beaten human champions at Go and poker.Jianlin Cheng, of the University of Missouri, in Columbia, who was one of the first to apply deep learning in this way, says such programs should be able to spot correlations between three, four or more amino acids, and thus need fewer related proteins to predict structures. Jinbo Xu, of the Toyota Technological Institute in Chicago, claims to have achieved this already. He and his colleagues published their method in PLOS Computational Biology, in January, and it is now being tested.If the deep-learning approach to protein folding lives up to its promise, the number of known protein structures should multiply rapidly. More importantly, so should the number that belong to human proteins. That will be of immediate value to drugmakers. It will also help biologists understand better the fundamental workings of cells—and thus what, at a molecular level, it truly means to be alive.

You’d think that by now every relevant measure of stock market overvaluation would have been converted into a chart and circulated throughout the blogosphere. But Zero Hedge has come up with a new one depicting how long the typical wage slave has to work to buy the typical stock. And – surprise – it shows historic, egregious overvaluation which, if history is any guide, implies a crash is close at hand.

How did workers come to be priced out of their slice of the American capitalist pie? First, an ever-rising share of the new wealth being created – in the form of corporate profits – is being siphoned off by said corporations, leaving less for the people depicted in the above chart.

Second, monetary policy has been so insanely loose in recent decades that the hot money thus created is pouring into equities, pushing up their market value.

Combine these two trends and you get greater concentration of wealth at the top and increasing difficulty on the lower rungs of the economic ladder. Which in turn explains President Trump, Brexit, Marine Le Pen and all other manner of political upheaval around the world. Middle and formerly middle-class voters, who overwhelmingly outnumber the 1%, are done being harvested and will now vote for anyone, right or left, who promises to take back what’s been stolen. So yes, history remains a good guide to the future. But maybe a different slice of history. Instead of 1999 or 2007, where stock market crashes were followed by a return to more-or-less statistically normal times, the French Revolution or the 1929 crash, after which things changed radically, might be worth studying.

Evan Morris, a high-flying corporate lobbyist, is suspected of embezzling millions of dollars in what is shaping up to be a sprawling Washington influence scandal

By Brody Mullins

Few outside Washington had ever heard of Evan Morris. Yet in the capital of wheeling and dealing, he was one of its most gifted operators.

From his start as an intern in the Clinton White House, he made powerful friends and at age 27 became a top Washington lobbyist for Roche Holding AG of Switzerland, one of the world’s largest pharmaceutical companies.

Mr. Morris seized on an idea to reach past elected officials and take the company’s message directly to voters, a strategy that helped generate hundreds of millions of dollars for his company. By 2010, he was one of the youngest vice presidents in Roche’s 120-year history.As head of the company’s Washington office, Mr. Morris oversaw a budget that over a decade ballooned to about $50 million a year and supported hundreds of lobbyists and consultants.His apparent success afforded luxuries including $2,000 bottles of wine, a $3 million waterfront vacation home, a $300,000 mahogany speedboat and four Porsches. He belonged to eight private golf courses and hired top chefs to cook for dinner parties at his home. He married and had two children.

On July 8, 2015, Mr. Morris stayed up drinking with Virginia Gov. Terry McAuliffe and a few others after a campaign fundraiser at Mr. Morris’s house. They smoked cigars and shared a bottle of Petrus, one of the world’s most expensive wines, produced on a 28-acre estate in Bordeaux.
The next day, everything fell apart. Roche’s general counsel had arranged to meet with Mr. Morris about some unusual expenses. Mr. Morris arrived, then fled the meeting early.
He ended up at his favorite golf club, where he retreated to a secluded spot on the course, carrying a bottle of wine. Mr. Morris sat in a wooden lounge chair, took out his phone and started texting his wife. Government investigators now suspect Mr. Morris embezzled millions of dollars from his company over a decade in a kickback scheme involving Washington consultants he did business with, according to people familiar with the probe by the Justice Department and Federal Bureau of Investigation.

It is shaping up to be one of the biggest U.S. investigations into Washington’s influence business since the bribery and corruption case surrounding lobbyist Jack Abramoff rocked the nation’s capital in the mid-2000s.

Investigators are trying to determine if any of the lobbyists, media advisers, political strategists and consultants hired by Mr. Morris had helped hide alleged kickback payments, which could yield fraud or other charges. Federal prosecutors have already presented evidence to a grand jury.

Millions of dollars went missing from the Washington accounts overseen by Mr. Morris, said people familiar with the findings of an internal company investigation. The inquiry concluded that “a senior vice president of the company had violated our policies and procedures,” a spokesman said.

Among Washington lobbyists, Mr. Morris was an early pioneer in the practice of exploiting gaps in disclosure laws for companies to spend millions of dollars, much of it untraceable, to fund stealthy influence campaigns.

What might appear to lawmakers as a public outcry could instead be the product of a lobbying operation conducted beyond the bounds of conventional tactics—what Mr. Morris and his team had called “black ops.” The lobbyist rode that wave, boosted his employer and made himself rich, until he crashed.

The account of Mr. Morris’s rise and fall is based on interviews with consultants, lobbyists and government officials, as well as friends and colleagues who witnessed it.

Road to riches

Born in Queens, N.Y., Mr. Morris grew up with his sister and parents in a 1,500 square-foot home located roughly between the LaGuardia and John F. Kennedy airports in New York City.

While a student at Union College, Mr. Morris interned in 1996 at the White House, where he sat outside the office of Harold Ickes, a top adviser to then-President Bill Clinton. In 1999, Mr. Morris graduated cum laude with a degree in political science.

He landed a job in 2003 at Patton Boggs, a prominent Washington lobbying firm with close ties to the Democratic Party. The office was founded by Thomas “Tommy” Hale Boggs Jr., whose father was the Democratic House majority leader and whose mother served nearly 20 years in Congress. No firm earned more in lobbying fees during the 2000s, disclosure reports show.Former chief executive of Roche Pharmaceuticals North America, George Abercrombie, right, in the fall of 2005. Photo: Joshua Roberts/Reuters

Roche spent a few million dollars a year on outside lobbying firms, including Patton Boggs, and the company was interested in expanding its own Washington lobbying office. The company in 2004 had revenues of $27 billion for drugs to treat HIV, anxiety, breast cancer, and the avian flu, among others.

While working for Patton Boggs, Mr. Morris met George Abercrombie, then the chief executive of Roche’s North America operations. Mr. Abercrombie wanted more wins from his Washington team. Mr. Morris told him that with enough resources he could do better.

Months later, in 2005, Roche hired Mr. Morris as a lobbyist. Not long after, he was running the Washington office.

Those who knew Mr. Morris say he was gifted at his job and impressed senior colleagues as someone eager to make a name for himself. In early 2005, he got the chance.

A few dozen people abroad had died after contracting the avian flu, and Americans began to worry about a U.S. outbreak. Mike Leavitt, secretary of Health and Human Services in the Bush administration, said at the time the federal government wasn’t prepared for the threat.

Roche produced the leading treatment, a pill called Tamiflu. Sensing opportunity, Mr. Morris adopted an emerging lobbying tactic: build support among a lawmaker’s constituents to supplement the traditional glad-handing of elected officials with dinners and campaign donations.

Mr. Morris contracted consultants who promoted news stories that stoked fears about an avian-flu outbreak. The goal was to sell more Tamiflu.

In October 2005, 32 Democratic senators wrote a letter to President George W. Bush expressing their “grave concern that the nation is dangerously unprepared for the serious threat of avian influenza.”
Within weeks, Mr. Bush created an emergency stockpile of avian flu treatments that eventually included more than $1 billion worth of Tamiflu pills. His administration offered subsidies that led to millions of dollars of additional Tamiflu sales to state governments.

Overnight, Mr. Morris was a company star.

Close-hand combat

In 2009, Roche acquired Genentech Inc., a San Francisco-area drug firm, and took the name Genentech for its U.S. pharmaceutical business. The deal set off a bruising internal fight.

The two companies had their own Washington lobbying operations, and now needed only one. Mr. Morris wanted to lead it. So did Genentech lobbyist Heidi Wagner. One of her allies called Democratic congressional aides and asked them to call company executives on Ms. Wagner’s behalf.

Other Capitol Hill aides friendly with Mr. Morris heard about the calls and alerted him. His backers contributed to an article in the news outlet Politico that quoted anonymous sources saying Mr. Morris was the better pick: He was a Democrat, the party that controlled the White House and Congress at the time. Ms. Wagner, the story noted, was a Republican.

A few weeks later, Mr. Morris got the job. He began work by 6 a.m., often with a meeting on the golf course, and he usually stayed late.

In 2010, the Food and Drug Administration began steps to ban the use of Avastin to treat breast cancer. The FDA had given conditional approval to Avastin—one of Genentech’s top-selling products—but reversed course after the agency said its effectiveness against breast cancer couldn't be proved, and it posed a greater risk for severe side effects. Its use to treat other types of cancer wasn’t challenged.

Christi Turnage, a breast-cancer patient, testified in favor of Avastin during a June 2011 Food and Drug Administration hearing as the agency considered rescinding approval of the drug for breast cancer. Photo: Joshua Roberts/Bloomberg News

At a cost of nearly $90,000 per patient, Avastin provided the company with $6 billion in sales in 2009, including $1 billion from breast-cancer cases. Mr. Morris set out to stop or stall the FDA.

His team launched the Patient Care Action Network, a nonprofit group, which recruited doctors and patients to urge their congressional representatives to fight the decision. Mr. Morris’s team promoted articles on conservative websites such as RedState, Breitbart News and BigGovernment.com that quoted women in treatment who said the drug was their best chance at recovery.

Among the readers was Republican Sen. David Vitter, who said efforts to remove Avastin were akin to a death-panel decision. “I shudder at the thought of a government panel assigning a value to a day of a person’s life,” he said in a July 2010 news release.

The FDA reached a final decision more than a year later. In late 2011, the agency rescinded its approval of Avastin to treat breast cancer.

Mr. Morris took credit for orchestrating a delay that, he boasted to colleagues, generated roughly $1 billion in revenue.

The spoils

Success paid off for Mr. Morris. In 2006, he traded in his purple Mazda Miata for a Porsche 911 convertible. The next year, he and his wife moved into a $1.7 million house in the Washington suburb of Belle Haven, Va. He told people he spent $1 million on home renovations, transforming it into a five-bedroom, seven-bath showpiece with a 3,000-bottle wine cellar.

The wine cellar in Evan Morris’s home.

Mr. Morris loved golf, food and wine. He kept more than 1,000 cigars in six humidors at Genentech’s Washington office. On afternoons, he often retreated to the W. Curtis Draper cigar shop, next to the White House, where he could smoke while doing business by phone.

A former colleague recalled the day Mr. Morris ordered a $2,000 bottle of wine during lunch. When they finished, another bottle was delivered free.

In October 2010, Mr. Morris bought a $1.4 million condo in San Francisco’s tallest residential building. He told colleagues it was a bonus for his help in the Genentech merger. Real-estate records show Mr. Morris bought it himself.

The Millennium Tower in San Francisco. Photo: Beck Diefenbach/Reuters

Mr. Morris belonged to eight exclusive country clubs in Washington, New Jersey and California. He kept a set of clubs at each. The courses—including the Baltusrol Golf Club in Springfield Township, N.J., and The Olympic Club in San Francisco—were expensive. His favorite was the Robert Trent Jones Golf Club in suburban Virginia, which cost more than $100,000 to join.

Mr. Morris told friends various stories to explain how he paid for his golf memberships. In one version, he covered the fees by holding fundraising events at the golf courses for the Bill, Hillary and Chelsea Clinton Foundation. He told others he received the memberships as a bonus from his company.

A spokesman for the Clinton foundation said the group never had such an arrangement with Mr. Morris. A spokesman for his company said the firm didn’t give Mr. Morris golf memberships.

In June 2011, Mr. Morris paid $3.1 million in cash for a waterfront Georgian Estate on Maryland’s Eastern Shore. The 7,800 square-foot house had six bedrooms, eight baths, a pool, hot tub and a pair of Sea-Doos, the personal watercraft. He called it the “House that Tamiflu bought,” friends said.

Mr. Morris in 2012 bought the mahogany speedboat that he kept docked at the house. He named the custom-made craft the Mulligan. To practice docking it at his private pier, he bought a second motor boat.

Mr. Morris gave different accounts of how he got the boat, according to people who asked him about it. He told some he won it at a charity auction after buying $50,000 worth of raffle tickets. He told others he bought it from someone who had ordered the boat but went bankrupt before it was delivered.

Evan Morris's vacation home in Easton, Maryland where he housed his boat, the Mulligan.

His lobbying victories afforded him relative autonomy over his office-budget spending—as much as $3 million without prior approval from Genentech.

Mr. Morris used Genentech funds to pay the $150,000 fee to get on the board of the James Beard Foundation, according to Diane Stefani, a spokeswoman for the prestigious culinary arts organization.
In early 2015, the Morris family was featured in a Washington Post story about people who hired top chefs to cook for dinner parties at home. Mr. Morris told friends he paid $10,000 for David Chang, the chef and founder of New York City’s Momofuku, to cook for a dinner party at his home that January.

Playing politics

By law, companies must make public how much they spend lobbying members of Congress and high-level officials in the executive branch. By that measure, Genentech spent about $5 million in 2015.

In reality, companies, including Genentech, spend far more on campaigns to rally people in ways favorable to their business.

Mr. Morris was an early adopter of the strategy and among the most aggressive. He paid for TV and internet ads, opinion polls and focus groups. He sponsored nonprofits that engaged in letter-writing campaigns and organized patient groups that demanded Medicare reimbursement for his firm’s drugs.

Expenditures on such under-the-radar tactics aren’t required to be made public. Altogether, Genentech spent as much as $50 million a year to shape government policy under Mr. Morris.

He also had control of political fundraising accounts, which allowed him to direct money to favored members of Congress.

A worker helps prepare Tamiflu at the Roche factory in Switzerland. Photo: ZUMAPRESS.com

From 2005 to 2015, Mr. Morris steered nearly $3 million in political donations, according to campaign-contribution records. Roche and Genentech donated more than $1 million to the Democratic and the Republican governors associations.

Mr. Morris and his wife, a former schoolteacher, made more than $125,000 in personal campaign contributions from 2003 to 2015, the records show. The couple donated to nearly 50 lawmakers, almost all Democrats. Mrs. Clinton was a top recipient.

Mr. Morris helped the Biotechnology Innovation Organization, a Washington trade group, hire Mrs. Clinton to address its 2014 annual convention. She was paid $335,000, records show. He arranged donations to the Clinton foundation of between $110,000 and $275,000 from the Roche Family Foundation and Genentech, public records show.

After a 2010 fundraising event he organized for a Democratic lawmaker at the Bayonne Golf Club in New Jersey, Mr. Morris invited donors to meet and take photos with Mr. Clinton, who had just finished a round of golf.

Genentech donated $750,000 to help fund festivities for former President Barack Obama ’s second-term inauguration in January 2013. Mr. Morris and his wife, Tracy, attended a White House party hosted by the Obamas a few days before the swearing-in ceremony. On Inauguration Day, the couple sat in prime seats in front of the White House for the parade.

The next year, Mr. Morris was invited to a White House concert with performers Aretha Franklin, Patti LaBelle, Ariana Grande and Melissa Etheridge. About 200 people attended, including the president, first lady Michelle Obama and several cabinet secretaries, visitor logs show. Mr. Morris and his wife sat in the front row.

Behind the curtain

Mr. Morris wasn’t required to publicly report most of his spending. As it turned out, he also sought to keep others in the dark.In 2005, Mr. Morris started working with the advertising firm National Media Inc. and James Courtovich, a Washington media consultant who worked for National Media and started two other firms, including Sphere Consulting LLC.Financial transactions viewed by The Wall Street Journal showed the three firms did millions of dollars in consulting business with Genentech from 2005 to 2015. The records also showed that National Media and Mr. Courtovich’s two firms sent millions of dollars to Mr. Morris’s personal bank account.Mr. Morris “created schemes to misappropriate company funds for personal gain and deliberately concealed his actions,” Genentech said in a written statement. Genentech didn’t say how much it paid the firms over the decade, or how much the firms paid Mr. Morris.People familiar with the matter said Genentech’s contracts with the three firms reached $3 million in some years.In one example, Mr. Morris hired Mr. Courtovich’s Sphere Consulting in 2012 for $880,000 to do policy work with think tanks, according to documents viewed by the Journal. Genentech paid Sphere two payments of $440,000 each on Nov. 1 and Dec. 1.On Dec. 10, Mr. Courtovich’s firm sent a payment of $448,986.22 to Mr. Morris’s personal bank account. Eric Lewis, a lawyer for Mr. Courtovich and Sphere Consulting, said the payment was to reimburse Mr. Morris for personal funds that he said he used for an event with the American Enterprise Institute, a Washington think tank. Mr. Lewis provided the Journal with an AEI invoice for $448,986.22 that Mr. Morris gave Sphere.An AEI spokeswoman said the invoice was falsified.

The AEI invoice submitted by Evan Morris Photo: Courtesy Eric Lewis

“Sphere is shocked and dismayed that Sphere’s client provided fake documents that defrauded not only his company but Sphere as well,” Mr. Lewis said. The standard practice at National Media and Sphere, he said, was that an accounting team would review and approve receipts from Mr. Morris before issuing a reimbursement check. The Sphere transactions were reviewed in a random audit by the Internal Revenue Service, he said.“It was always Sphere’s understanding that these documents were not only provided for reimbursement by Evan Morris, but also provided duly to the accounting team at Genentech,” Mr. Lewis said.Genentech said in a statement: “We do not have any information to suggest that these reimbursements were legitimate, and in any event would not authorize payments to a vendor to reimburse an employee for business-related expenses.”In another instance, Genentech paid National Media $2 million for public affairs counseling and strategic consulting, the records show. On April 6, 2012, days after National Media received the final installment of $750,000, the firm sent $303,048.95 to the Hacker Boat Company, which made and sold the Mulligan, Mr. Morris’s boat. Evan Tracey, a vice president at National Media, said Mr. Morris had submitted an invoice for that amount saying it was to reimburse Mr. Morris for renting space and paying for food and other expenses related to an event at the Hacker Boat Company for the “Democratic attorney general group.”The Democratic Attorneys General Association and the boat company said no such event took place. A spokesman for Hacker said Mr. Morris’s boat cost $303,048.95.National Media ended its relationship with Genentech in 2012, Mr. Tracey said. Mr. Morris worked with Mr. Courtovich, independently of National Media, until 2015, according to people familiar with the matter.Mr. Tracey said National Media’s business with Genentech was performed with “appropriate contracts, purchase orders, and with a clearly defined approval and verification process.”Mr. Lewis, the lawyer for Sphere, said: “At no time did the Sphere team (or anyone else to our knowledge) have any reason to believe that any of these payments were anything other than what they were on their face: bona fide reimbursements.”

The fall

In January 2015, the Democratic Party announced Mr. Morris would serve on the fundraising committee for the 2016 Democratic National Convention.Mr. Morris told colleagues he might be done with lobbying. He said he had an exit plan: Raise enough money for Democrats and Mrs. Clinton’s 2016 presidential campaign to land a job as a U.S. ambassador, perhaps to Switzerland, where Roche had its world headquarters.In May 2015, Genentech said it received an anonymous letter that warned of unusual financial arrangements by Mr. Morris and triggered an internal investigation.On July 8, 2015, Frederick Kentz, the chief compliance officer and head of legal affairs at Genentech, told Mr. Morris he was flying to Washington from San Francisco to meet with him the next day. The lawyer told Mr. Morris to clear his schedule.That night, Mr. Morris and his wife hosted a fundraiser at their home for a Democrat running for the Virginia state senate. Afterward, Messrs. Morris and McAuliffe, the Virginia governor, smoked cigars and drank on a back patio with a few other guests.Mr. Morris had confided to a few people at the fundraiser that he was nervous about the meeting with the lawyer. Mr. McAuliffe, through a spokesman, said Mr. Morris didn’t appear troubled that night and had talked about hosting a fundraising event for Mrs. Clinton’s presidential campaign.The next morning, July 9, Mr. Morris drove a new Porsche to the company’s downtown Washington office and parked in the building’s garage. The meeting took place at the office of one of Genentech’s law firms. When Mr. Morris arrived, he was ushered into a conference room where a member of the firm told him that an investigation had found unusual payments. Mr. Kentz planned to tell Mr. Morris that he was being suspended, but Mr. Morris abruptly left the office before the lawyer had a chance.

The second round of a 2015 PGA tournament at the Robert Trent Jones Golf Club in Gainesville, Va. Photo: Steve Helber/Associated PressWhen Mr. Morris’s wife didn’t hear from him that afternoon, she called and sent text messages. He answered by text saying he was in meetings.

Mr. Morris went to the Robert Trent Jones Golf Club in Virginia. Employees were preparing for a coming professional golf tournament hosted by Tiger Woods. Genentech was a sponsor.Mr. Morris had landed a coveted spot in a charity tournament scheduled the day before the PGA event. He was slated to tee off with Erik Compton, a professional golfer who had used a Genentech drug after a heart transplant.As afternoon turned to evening, his wife began to worry. Mr. Morris hadn’t returned her calls. Family friends searched the parking garage for his Porsche. Someone suggested she check his debit and credit cards online.She learned her husband had made a purchase that day—at Loudoun Guns Inc. in Leesburg, Va. She called him again, but he didn’t answer. She left him a voice mail saying that everything would be OK. She texted photos of their two children and then called police.When Mr. Morris finished his round of golf, he went to the locker room, showered and put on a blue blazer with the club’s insignia. He ordered a steak dinner at the clubhouse and bought a round of drinks for everyone at the restaurant. Mr. Morris asked for a bottle of Petrus. Around sunset, he walked to a secluded spot a few hundred yards from the clubhouse where members sometimes smoked cigars around a fire pit. He sat in an Adirondack chair and drank. He texted his wife the contact information for his accountant, financial planner and a life-insurance provider. Mr. Morris, 38 years old, placed an instruction on his lap: “Do not resuscitate.” He took out his new revolver and fired one shot into the fire pit. Then he put the muzzle of the gun to his mouth.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.